Claim College Dependent or Not

[BMarsh]

It appears I am not able to take advantage of any higher education credits for our child who attends college out of state because of my wife and I's combined income.  Our child had a summer job, which did not net much and attends school mainly on scholarship and loans.  Would it be more advantageous to not claim my child and let them claim their self on their return?

[xmasbaby0]

The rule is that if a child CAN be claimed they are supposed to say on their own tax return that they can be claimed as someone else's dependent.   Doing otherwise is a form of tax fraud, which you surely do not want to encourage your child to do.

https://ttlc.intuit.com/community/dependents/help/when-do-i-have-to-answer-yes-to-being-claimed-as-a...

[ColeenD3]

There is a common idea that a parent can decide not to claim a dependent so that they can reap certain benefits. The truth is, a qualifying child or a qualifying relative is your dependent. 

While the IRS never comes out and says that you must claim a dependent, they do give the definition of who is a dependent.

The term “dependent” means:

• A qualifying child, or
• A qualifying relative.

While you can choose not to claim your dependent, the qualifying person MUST indicate on his own return that he is a dependent, but that no one will actually claim him as such.

In TurboTax Online, the questions read:

Someone else can claim me as a dependent on their tax return. You would answer yes.

And this person will claim me on their 2021 tax return. You would answer no.

Sometimes a parent will not be able to take advantage of an Education Credit and will forgo claiming the dependent so that they can get the credit. This will not necessarily work out. A student, under the age of 24, must have a tax liability in order to claim the non-refundable portion of the credit.

When using the ITA that the IRS provides, you can be told that you are eligible, but can't take the refundable portion in any of the following circumstances.

You are eligible to claim the American Opportunity Credit.

However, you cannot claim any part of the American Opportunity Credit as a refundable credit on your tax return since:

• you were over age 18 and under age 24 at the end of 2021,
• you were a full-time student,
• your earned income was less than one-half of your support,
• at least one of your parents was alive at the end of 2021, and
• you are not filing a joint return.

[Hal_Al]

Q. Would it be more advantageous to not claim my child and let them claim their self on their return?

A. No. Essentially that is not allowed.  A student that CAN be claimed as a dependent, is essentially not allowed the refundable portion of the American Opportunity Credit, whether he is actually claimed or not.

If the student actually has a tax liability (it sounds like your student does not have a tax liability), there is a provision to allow him to claim a non-refundable tuition credit. But then the parent must forgo claiming the student as a dependent, and the $500 other dependent credit. The student must still indicate that he can be claimed as a dependent, on his return.

[NCperson]

@xmasbaby0 - the rules for AOC (and LLC) are different.  Students are eligible for AOC (and LLC) even if they CAN be claimed by their parents and aren't.... however, the opportunity to get the credit is quite limited

for AOC, there is a refundable credit (up to $1000), but if you are under 24, filing single, and you earnings are less than half of your expenses and at least 1 parent is alive, you are not eligible.  Then there is the non-refunable credit, which is up to $1500.  But if the W-2 earnings are less than $12,550, there is no tax liability so there is no non-refunable credit to be had. 

if the student is claimed by the parent, then the educational credits can only be had by the parents; the student is ineligible. 

Otherwise, I totally agree with your post; and I see young adults make this error all the time.